Incorporation

This page houses articles that I have written about using a Canadian Controlled Private Corporation (CCPC). These can go by many names, like a Medical Professional Corporation (MPC), Professional Corporation (PC), or a holding company.

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    Corporations & Cashflow

    How Money You Earn Flows Through Your Corporation & Into Your Pocket

    professional corporation account

    Cashflow is like a river that flows from your earnings, through taxation, and into your pocket to spend.

    A Canadian Controlled Private Corporation (CCPC) or Professional Corporation is like a dam that can regulate that flow. Smoother flow means less money lost to taxes.

    Is CPP A Pension Or A Tax For The Self-Employed?

    cpp self-employed

    One of the arguments used against paying salary from a corporation is that you have to pay into CPP. Both the employer and employee contribution.

    Is that a tax and something to avoid, if possible? Or is it a defined benefit, inflation-indexed pension to be coveted?

    Spoiler: It can be either.

    Is CPP A Good Investment For The Self-Employed?

    Enhanced CPP ROI

    If CPP is a pension in your case, the next question is whether it is a good investment or not.

    Those who argue against paying salary and into CPP base that on the fact that it leaves less money in the corporation to invest.

    How does CPP compare to other ways for you to invest?

    Corporate Cashflow Tax Optimizer

    Not sure of the salary & dividend mix to get money out of your corp and into your hands?

    Enter your desired after-tax cashflow, your personal investment plans (like RRSP/TFSA), and your corporate income. It runs an algorithm to tax-efficiently move money out. You can use that to plan with your accountant.

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    Income Splitting

    Tax On Split Income (TOSI) Tax Rules

    family business income splitting

    In 2018, the Minister of Fairness spanked CCPCs for income sprinkling.

    There are still times where CCPC owners may still be able to us dividends to income-split with family members.

    There are complicated rules. Get the bottom line.

    You May Want To Be Sleeping With Your Billing Agent

    hiring spouse

    Hiring a family member and paying them a fair wage is a great way to income split.

    Not only do you decrease money going to the tax collector. You play less to outside agents. No one will care whether you get the maximum billable amounts more than you and your spouse.

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    Investing Using A Corporation

    Investment Taxation In A Corporation

    corporation investing

    If you have retained earnings in your corporation, you can invest them to grow. That is the tax deferral advantage of a corporation.

    How well that works depends on the type of investment income it produces and how well you flow money out of your corporation.

    Learn about how corporate investment taxation works to keep the tax skeeters out of your corporate reservoir.

    What Counts As Passive Income For Corporations: Devils In The Details

    Too much passive income in a CCPC can increase its tax rate.

    Learn about what counts and what doesn’t.

    Make sure that you are using all of the deductions available to you.

    Will The Active-Passive Tax Rules Destroy the CCPC Enterprise?

    These tax changes are meant to further discourage incorporated professionals and other high-income professionals from using a CCPC as a tax-deferral vehicle.

    What impact will that have on the tax-deferral power of private corporations?

    Impact of the Passive Income Tax Rules For Corporations As A Retirement Vehicle

    The active-passive tax increase on Canadian small businesses has a variable impact.

    It depends on your income, savings rate, and spending.

    Check out the effects on three different model high-income households.

    With The Passive Income Corporate Tax Changes: Is It Bad To Be Good?

    Corporation Tax Savings
    Modified from Grease, 1978, RSO Records.

    The tax changes were aimed to target high-income professionals.

    Could a moderate-income professional get caught in them too, if they are good. They work hard, live within their means, and save for the future.

    Will Dr. Sandra D. be punished for their savings rate?

    Limbo With The New Active-Passive Income Rules For Corporations

    A combination of too much active and too much passive income in a corporation could result in a bump in corporate tax rate.

    A high level approach is a basic dance to lower corporate active and passive income to limbo under the threshold.

    Financial Tools & Strategies For Incorporated Professionals To Repel Tax Pirates

    Canada tax increase

    An overview of eight different strategies we can use if we find our corporate ship drifting into tax-pirate infested waters.

    Learn the basics of how they work.

    Don’t just trade some tax savings for increased fees and complexity.

    Explaining The Refundable Dividend Tax On Hand (RDTOH)

    There are a number of tax rules to discourage using corporations for generating passive investment income. One of those is the RDTOH.

    There were more changes in 2019 to make it even more awkward and complicated.

    Like a Klingon mating ritual.

    Corporation GRIP As A Tax Slashing Weapon

    CCPC GRIP account

    If you receive eligible dividend income from investing in Canadian equities, it generates GRIP in your corporation.

    That can be used to give tax-favoured eligible dividends.

    This has the potential for very tax-efficient money flow through a corporation. Or you could cut yourself.

    Can You Benefit From The Loosened GRIP On Corp Passive Income Tax

    Warning: Devilishly Advanced Content.

    Implementation of the active-passive income tax was meant to penalize those with high corporate incomes.

    They broke tax integration in Ontario & New Brunswick that could translate to a 2% to 6.66% net tax savings for a small group of big earners/investors/spenders.

    Investing Using A Corporation vs RRSP vs TFSA Simulator

    incorporation retirement investing

    Some advise to only pay dividends from a corporation and keep all investments in the corp.

    Others advise to pay salary and use an RRSP plus the corp. Some even suggest a combination to use a corp, RRSP, and TFSA.

    There are a number of variables that lead to this advice and they change as our corporation grows. This simulator compares these different strategies over time.

    Time For Capital Gains Harvesting From Your Corporation?

    capital gains harvest

    Generally, it is a good idea to defer realizing capital gains because that defers taxes. However, in a corporation, if you are sitting on large capital gains, it can sometimes makes sense to harvest them.

    A capital gains harvest could be a tax efficient way to move money out of your corporation to fund a personal expense, top up your TFSA or RRSP, or invest via a personal account.

    HBB Corp Class Bond ETF vs ZDB Discount Bond ETF in a Corporate Account

    Learn how discount bonds are more tax efficient. With the tax rules to discourage passive income in corporations, that is even more important.

    HBB could take tax efficiency up another notch depending on your corporate income and pay-out.